What Is a Financial Service? How Advice, Dealing & Custody Trigger AFSL Requirements

Introduction

Under the Corporations Act 2001 (Cth) (‘Corporations Act’), a business may provide a financial service by giving financial product advice, dealing in a financial product, making a market, operating a registered scheme, or providing custodial or other listed services. Section 766A(1A) of the Corporations Act separately covers traditional trustee company services. Identifying a financial service is separate from deciding whether the underlying facility is a financial product, and money-related activity is not automatically a financial service.

Correct classification matters because Section 911A(1) of the Corporations Act requires a business carrying on a financial services business in Australia to hold an Australian Financial Services Licence (AFSL), unless an exemption applies, such as the authorised representative exemption in Section 911A(2)(a). This article explains the statutory categories, relevant exclusions, and how the classification affects licensing obligations for Australian financial services businesses.

Interactive Tool: See If Your Business Needs an AFSL Licence

What Activities Constitute Providing a Financial Service?

Providing Financial Product Advice

Under Section 766B of the Corporations Act, financial product advice is a recommendation, statement of opinion, or report of either, intended to influence a decision about a particular financial product or class of financial products. A communication may also qualify if it could reasonably be viewed as intended to influence that decision.

In addition, according to Section 766B(3) of the Corporations Act, personal advice is given where the provider has considered, or a reasonable person might expect the provider to have considered, one or more of the client’s objectives, financial situation and needs. Section 766B(4) of the Corporations Act sets out that all other financial product advice is general advice. 

Australian Securities and Investments Commission (ASIC) explains in Regulatory Guide 36.19 (RG 36) and Regulatory Guide 244 (RG 244) that factual information is different: objectively ascertainable information will usually not be advice unless its presentation suggests a recommendation or opinion.

Dealing in a Financial Product

Section 766C(1) of the Corporations Act outlines that dealing includes the following conduct, whether the person acts as principal or as agent: 

• applying for, acquiring, issuing, varying or disposing of a financial product; and
• underwriting, for securities and interests in managed investment schemes.

According to Section 766C(3) of the Corporations Act, a person dealing in a financial product on their own behalf is generally excluded from the definition of dealing, unless they are the issuer of that product. Section 766C(4) provides a separate exclusion for certain transactions involving an entity’s own securities.

Under Section 766C(2) of the Corporations Act, arranging for another person to carry out one of these activities is also dealing, unless the conduct amounts to providing financial product advice.

ASIC states in RG 36.36–RG 36.38 that arranging involves negotiating or bringing about the issue, acquisition, variation, disposal or application. A business may therefore be dealing even when another intermediary executes the transaction.

Making a Market for a Financial Product

Under Section 766D(1) of the Corporations Act, a person makes a market when they regularly state prices at which they propose to acquire or dispose of financial products on their own behalf, and other people reasonably expect to be able to transact at those prices. The activity must also be distinct from operating a financial market, and Section 766D(2) excludes certain product issuers.

This activity may cover a business that regularly quotes buying or selling prices and stands ready to transact at those prices. Section 766A(1) of the Corporations Act lists making a market as a financial service alongside advice, dealing and custodial or depository services.

Providing Custodial or Depository Services

Pursuant to Section 766E(1) of the Corporations Act, a custodial or depository service is provided when, under an arrangement with the client (or with another person who has an arrangement with the client), the provider holds a financial product, or a beneficial interest in one, in trust for or on behalf of the client or another person nominated by the client. The service begins when the provider first holds the product or beneficial interest in that capacity.

Under Section 766E(2)(b) of the Corporations Act, continued holding also constitutes providing a custodial or depository service for licensing purposes. Section 766E(3) excludes certain conduct, including operating a clearing and settlement facility, operating a registered scheme, and holding assets in specified superannuation structures.

Other Regulated Financial Services

Section 766A of the Corporations Act captures financial services beyond advice, dealing, market making and custody. The listed categories include:

• operating a registered scheme;
• operating the business and affairs of a CCIV;
• providing a crowdfunding service;
• providing a claims handling and settling service;
• providing a superannuation trustee service; and
• providing traditional trustee company services.

What Is the Difference Between a Financial Product & a Financial Service?

Under Section 763A(1) of the Corporations Act, a financial product generally includes a facility through which, or through the acquisition of which, a person does one or more of the following, subject to the specific inclusions and exclusions in Sections 763E, 764A and 765A:

• makes a financial investment; or
• manages financial risk; or
• makes non-cash payments.

A financial product is the thing; a financial service is what someone does with it. A share, for example, is a financial product. Recommending it, arranging its purchase or holding it on trust are each separate financial services. Handling money alone, however, does not automatically amount to a financial service.

What Activities Are Excluded From the Definition of a Financial Service?

How the Exclusions Operate

The Corporations Act and the Corporations Regulations exclude certain activities from the definition of a financial service, or from particular financial services such as dealing. Conduct that falls within an exclusion is not a financial service and does not, by itself, require an AFSL. ASIC’s Regulatory Guide 36 (RG 36) explains how ASIC interprets these exclusions, but it is regulatory guidance rather than law.

Clerical Work & Factual Information

Section 766A(3) of the Corporations Act excludes conduct carried out in the course of work ordinarily done by clerks or cashiers. RG 36.35 describes this work as routine or administrative activity, including:

• handing out or displaying product documents;
• answering routine questions with factual information;
• collecting payments and issuing receipts; and
• helping a consumer complete an application form after the consumer has already decided to acquire the product.

Factual information is objectively ascertainable information whose truth or accuracy cannot reasonably be questioned. RG 36.23–RG 36.25 explains that factual information will usually fall outside financial product advice, provided it is not presented as a recommendation or opinion about a particular financial product.

Information may become financial product advice if its presentation suggests that a person should buy, sell or hold a particular product or class of products.

Conduct Excluded From the Definition of Dealing

Under Section 766C(3), a person does not deal in a financial product when dealing on their own behalf, unless the person is an issuer dealing in its own financial products.

Section 766C(4) also excludes certain transactions by a government, public authority, body corporate, unincorporated body or CCIV involving that entity’s own securities, subject to the limits in Section 766C(5).

RG 36.41 also identifies administrative and professional activities that fall outside dealing under the Corporations Regulations, including:

• preparing registration or transfer documents to complete administrative tasks on a person’s instructions, under Regulation 7.1.29(3)(g);
• enforcing rights under a credit facility, under Regulation 7.1.34(2)(a);
• disposing of a financial product subject to a mortgage in the circumstances described in Regulation 7.1.34(2)(b); and
• a lawyer arranging or carrying out a dealing on a client’s instructions in the circumstances described in Regulation 7.1.35A.

Services Provided as Part of an Exempt Service

Under Regulation 7.1.29 of the Corporations Regulations, an eligible service is not a financial service where it is provided as part of an exempt service, is reasonably necessary for that service and forms an integral part of it.

The regulation covers specified advice and administrative activities, including certain business, structural, risk-related, taxation and superannuation advice. Each condition must be considered against the relevant facts.

When Does Providing a Financial Service Require an AFSL?

When a Business Needs Its Own AFSL

Section 911A(1) of the Corporations Act requires a person carrying on a financial services business in Australia to hold an AFSL covering the relevant financial services. ASIC RG 36.59 explains that carrying on a business generally involves providing financial services with system, repetition and continuity.

Section 911D also treats a financial services business as carried on in Australia if it engages in conduct intended to induce people in Australia to use its financial services, or likely to have that effect.

However, providing one financial service does not automatically mean the business must hold its own AFSL. Section 911A(2) of the Corporations Act sets out exemptions, with further exemptions in Regulation 7.6.01 of the Corporations Regulations 2001 (Cth) (‘Corporations Regulations’). ASIC discusses these exemptions in RG 36.60–RG 36.67, including:

• providing financial services as a representative of an AFSL holder;
• certain services provided by product providers under an arrangement with a licensee, known as an intermediary authorisation;
• some forms of general advice provided through newspapers, periodicals or broadcasts; and
• specified services provided only to wholesale clients.

A business relying on an exemption must satisfy its specific conditions. Section 911A(4) of the Corporations Act prevents reliance on the exemptions for operating a registered scheme or providing a traditional trustee company service. Section 911A(4A) separately limits exemptions for superannuation trustee services to those expressly covering that service.

Providing Services on Behalf of an AFSL Holder 

Section 911B(1) of the Corporations Act only allows a person to provide financial services on behalf of another business in the circumstances it lists. One of these is under Section 911B(1)(b), where the principal’s AFSL covers the service, the provider is the principal’s authorised representative, and the authorisation covers that service, subject to the provision’s other applicable conditions. The provider may then rely on the exemption in Section 911A(2)(a), rather than holding a separate AFSL.

The arrangement must match the services actually provided. Under Section 916A(1) of the Corporations Act, an AFSL holder authorises a representative by written notice specifying the financial services the representative may provide. Section 916F(1), as modified by Regulation 7.6.04AA of the Corporations Regulations, generally requires the person giving the authorisation to notify ASIC within 30 business days, subject to specified exceptions.

Employees and directors of the licensee or a related body corporate generally do not need a written authorisation, because Section 911B(1)(a) allows them to provide services on the licensee’s behalf, subject to its conditions.

How Can a Business Tell If It Provides a Financial Service?

The assessment should begin with the underlying facility, not only the way the business describes its product, applying the financial product test discussed above under Section 763A of the Corporations Act together with the inclusions and exclusions in Sections 762A, 764A and 765A.

RG 36.1–RG 36.2 states that the first question is whether the business provides a financial service. The business should assess whether its activities fall within one or more of the categories outlined above: financial product advice, dealing (including arranging), making a market, operating a registered scheme, custodial or depository services, or another prescribed financial service.

The assessment should then consider the actual conduct performed. A business may provide more than one financial service through the same arrangement. RG 36.12–36.14 separates this classification question from the licensing question: identifying a financial service does not, by itself, establish that the business must hold its own AFSL.

The next step is to check the exclusions and exemptions. This includes:

• exclusions from financial product advice or dealing;
• exemptions under Section 911A(2) of the Corporations Act; and
• relevant provisions of the Corporations Regulations.

The analysis should record the precise facts supporting any exemption rather than treating the exemption as automatic.

The licence review should match both the financial products and services provided. Section 911A(1) of the Corporations Act requires the licence to cover each financial service the business provides, and an AFSL only covers the services and products listed in its authorisations. 

The business should confirm that its AFSL authorisations cover each activity, or consider whether it can operate as an authorised representative under Sections 911B and 916A of the Corporations Act, with legal services for businesses available for that broader review. 

Click Legal can assist Australian financial services businesses with classifying their activities, reviewing exemptions and assessing the authorisations required for their operating model.

Conclusion

The Corporations Act covers advice, transactions, price quoting, scheme operation, asset holding and other listed activities. Separating the facility from the conduct performed in relation to it helps determine when an AFSL is required and whether existing licence authorisations are sufficient.

For assistance with that assessment, contact the financial services lawyers at Click Legal to request a consultation. Click Legal advises financial services businesses on activity classification, exemptions and AFSL authorisations, helping clarify licensing requirements before services are offered or expanded.

Frequently Asked Questions